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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to .
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Commission file number 000-50961
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PENNSYLVANIA COMMERCE BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1834776
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Senate Avenue, P.O. Box 8599, Camp Hill, Pennsylvania 17001-8599
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 975-5630
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Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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1
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes No X
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The aggregate market value of voting stock held by non-affiliates of
the registrant as of the last business day of the Company's most recently
completed second fiscal quarter, June 30, 2004, was $74,652,419.
The number of shares of the registrant's common stock, par value $1.00
per share, outstanding as of February 28, 2005 was 5,919,515.
DOCUMENTS INCORPORATED BY REFERENCE:
Part II incorporates certain information by reference from the
registrant's Annual Report to Shareholders for the fiscal year ended December
31, 2004 (the "Annual Report"). Part III incorporates certain information by
reference from the registrant's Proxy Statement for the 2005 Annual Meeting of
Shareholders.
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2
PENNSYLVANIA COMMERCE BANCORP, INC.
FORM 10-K CROSS-REFERENCE INDEX
Page
Part I.
Item 1. Business..........................................................................................4
Item 2. Properties.......................................................................................11
Item 3. Legal Proceedings................................................................................11
Item 4. Submission of Matters to a Vote of Security Holders..............................................11
Part II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities............................................................11
Item 6. Selected Financial Data..........................................................................13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................14
(The information required by this item is incorporated by reference from the
Company's 2004 Annual Report.)
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.......................................14
(The information required by this item is incorporated by reference from the
Company's 2004 Annual Report.)
Item 8. Financial Statements and Supplementary Data......................................................14
(The information required by this item is incorporated by
reference from the Company's 2004 Annual Report.)
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure (This item is omitted since it is not applicable.)
Item 9A. Controls and Procedures..........................................................................14
Item 9B. Other Information (This item is omitted since it is not applicable.)
Part III.
Item 10. Directors and Executive Officers of the Registrant...............................................14
Item 11. Executive Compensation...........................................................................15
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................15
Item 13. Certain Relationships and Related Transactions...................................................15
Item 14. Principal Accountant Fees and Services...........................................................15
Item 15. Exhibits, Financial Statement Schedules..........................................................15
Signatures
3
Part I.
Item 1. Business
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Forward-Looking Statements
The Company may, from time to time, make written or oral
"forward-looking statements", including statements contained in the Company's
filings with the Securities and Exchange Commission (including the annual report
on Form 10-K and the exhibits thereto), in its reports to stockholders and in
other communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties and are subject to change based on various factors (some of which
are beyond the Company's control). The words "may", "could", "should", "would",
"believe", "anticipate", "estimate", "expect", "intend", "plan" and similar
expressions are intended to identify forward-looking statements. The following
factors, among others, could cause the Company's financial performance to differ
materially from that expressed in such forward-looking statements: the strength
of the United States economy in general and the strength of the local economies
in which the Company conducts operations; the effects of, and changes in, trade,
monetary and fiscal policies, including interest rate policies of the Board of
Governors of the Federal Reserve System; inflation; interest rate, market and
monetary fluctuations; the timely development of competitive new products and
services by the Company and the acceptance of such products and services by
customers; the willingness of customers to substitute competitors' products and
services for the Company's products and services and vice versa; the impact of
changes in financial services' laws and regulations (including laws concerning
taxes, banking, securities and insurance); the impact of the rapid growth of the
Company; the Company's dependence on Commerce Bancorp, Inc. to provide various
services to the Company; changes in the Company's allowance for loan losses;
effect of terrorists attacks and threats of actual war; unanticipated regulatory
or judicial proceedings; changes in consumer spending and saving habits; and the
success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statements, whether written or oral, that may be made from time to time by or on
behalf of the Company. For further information, refer to the Company's filings
with the Securities and Exchange Commission ("SEC").
General
Pennsylvania Commerce Bancorp, Inc. (the "Company") is a Pennsylvania
business corporation, which is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). The
Company was incorporated on April 23, 1999 and became an active bank holding
company on July 1, 1999 through the acquisition of 100% of the outstanding
shares of Commerce Bank/Harrisburg, N.A. On June 15, 2000, the Company issued $5
million of 11.00% Trust Capital Securities through Commerce Harrisburg Capital
Trust I, a newly formed Delaware business trust subsidiary of the Company.
Proceeds of this offering were invested in Commerce Bank/Harrisburg, N.A., the
company's wholly owned banking subsidiary. All $5
4
million of the Trust Capital Securities qualify as Tier 1 capital for regulatory
capital purposes. On September 28, 2001, the Company issued $8 million of 10.00%
Trust Capital Securities through Commerce Harrisburg Capital Trust II ("Trust
II"), a newly formed Delaware business trust subsidiary of the Company. Proceeds
of this offering were invested in Commerce Bank/Harrisburg, N.A., the company's
wholly owned banking subsidiary. All $8 million of the Trust Capital Securities
qualify as Tier 1 capital for regulatory capital purposes.
The Company is a member of the Commerce Bancorp, Inc. Network (the
"Network") and has the exclusive right to use the "Commerce Bank" name and the
"America's Most Convenient Bank" logo within its primary service area. The
Network provides certain marketing and support services to the Bank.
On November 2, 2004, the Company completed a public offering of 460,000
shares of common stock for a per share price of $49.00 and an aggregate offering
price of $22.5 million. The offering was made pursuant to an effective
registration statement filed with the SEC. The Company contributed substantially
all of the proceeds of the offering to the Bank to increase the Bank's capital
level. By increasing the Bank's capital level, the Bank can support branch
expansion and growth in customer deposits to fund lending and investment
activities.
As of December 31, 2004, the Company had approximately $1.3 billion in
assets, $1.2 billion in deposits, $653 million in total loans (including loans
held for sale), and $85 million in stockholders' equity. The Bank is a member of
the Federal Reserve System and substantially all of the Bank's deposits are
insured up to applicable limits by the Bank Insurance Fund (BIF) of the Federal
Deposit Insurance Corporation (FDIC) to the fullest extent permitted by law. The
Company's total revenues (net interest income plus noninterest income) were
$57.9 million and the Company recorded $8.6 million in net income for the year
ended December 31, 2004.
On January 28, 2005, the Board of Directors declared a two-for-one
stock split in the form of a 100% stock dividend distributed on February 25,
2005 to stockholders of record on February 10, 2005. Per share data and all
other appropriate information for all periods presented have been restated to
reflect the stock split.
The Company's principal executive offices are located at 100 Senate
Avenue, Camp Hill, Pennsylvania 17011, and its telephone number is (717)
975-5630.
As of December 31, 2004, the Company had 710 employees, of which 516
were full-time employees. Management believes the Company's relationship with
its employees is good.
Commerce Bank/Harrisburg
The Company has one reportable segment, consisting of Commerce
Bank/Harrisburg, N.A., as described in Note 1 of the Notes to Consolidated
Financial Statements included at Item 8 of this Report.
On July 13, 1984, Commerce Bank/Harrisburg filed an application to
establish a state-chartered banking institution with the Pennsylvania Department
of Banking. On September 7, 1984, the Bank was granted preliminary approval of
its application, and on September 11, 1984, was incorporated as a Pennsylvania
state-chartered banking institution under the laws of the Commonwealth of
Pennsylvania. The Bank opened for business on June 1, 1985.
On October 7, 1994, the Bank was converted from a Pennsylvania
state-chartered banking institution to a national banking association under the
laws of the United States of America and changed its name to "Commerce
Bank/Harrisburg, National Association." The Bank's conversion was consummated
pursuant to preliminary and conditional approval of the conversion granted by
the
5
Office of the Comptroller of the Currency (OCC) on July 5, 1994 in response to a
letter of intent to convert to a national bank filed by the Bank with the OCC on
April 6, 1994.
The Bank provides a full range of retail and commercial banking
services for consumers and small and mid-sized companies. The Bank's lending and
investment activities are funded principally by retail deposits gathered through
its retail branch office network.
Service Area
The Bank offers its lending and depository services from its main
office in Camp Hill, Pennsylvania, and its twenty-three full-service branch
offices located in Cumberland, Dauphin, York, Berks, and Lebanon Counties,
Pennsylvania.
Retail and Commercial Banking Activities
The Bank provides a broad range of retail banking services and products
including free personal checking accounts and business checking accounts
(subject to a minimum balance), regular savings accounts, money market accounts,
interest checking accounts, fixed rate certificates of deposit, individual
retirement accounts, club accounts, debit card services, and safe deposit
facilities. Its services also include a full range of lending activities
including commercial construction and real estate loans, land development and
business loans, business lines of credit, consumer loan programs (including
installment loans for home improvement and the purchase of consumer goods and
automobiles), home equity and Visa Gold card revolving lines of credit,
overdraft checking protection, student loans and automated teller facilities.
The Bank also offers construction loans and permanent mortgages for homes. The
Bank is a participant in the Small Business Administration Loan Program and is
an approved lender for qualified applicants.
The Bank directs its commercial lending principally toward businesses
that require funds within the Bank's legal lending limit, as determined from
time to time, and that otherwise do business and/or are depositors with the
Bank. The Bank also participates in inter-bank credit arrangements in order to
take part in loans for amounts that are in excess of its lending limit or to
limit the concentration of lending to any individual. In consumer lending, the
Bank offers various types of loans, including revolving credit lines, automobile
loans, and home improvement loans.
The Company has focused its strategy for growth primarily on the
further development of its community-based retail-banking network. The objective
of this corporate strategy is to build earnings growth potential for the future
as the retail branch office network matures. The Company's branch concept uses a
prototype or standardized branch office building, convenient locations and
active marketing, all designed to attract retail deposits. Using this prototype
branch concept, the Company plans to open four new branch offices in 2005 and
will continue to open multiple branches over the next five years. It has been
the Company's experience that each newly opened branch office incurs operating
losses during the first 12 to 15 months of operations and becomes profitable
thereafter. The Company's retail approach to banking emphasizes a combination of
long-term customer relationships, quick responses to customer needs, active
marketing, convenient locations, free checking for customers maintaining certain
minimum balances and extended hours of operation.
The Company is not dependent on any one or more major customers, and
its business is not seasonal.
6
Competitive Business Conditions / Competitive Position
The Company's current primary service area, the south central
Pennsylvania area, including portions of Cumberland, Dauphin, York, Berks, and
Lebanon Counties, is characterized by intense competition for banking business.
The Bank competes with local commercial banks as well as numerous regionally
based commercial banks, most of which have assets, capital, and lending limits
larger than that of the Bank. The Bank competes with respect to its lending
activities as well as in attracting demand, savings, and time deposits with
other commercial banks, savings banks, insurance companies, regulated small loan
companies, credit unions, and with issuers of commercial paper and other
securities such as shares in money market funds. Among those institutions, the
Bank has a share of approximately 4% of the bank deposits in its market area.
Other institutions may have the ability to finance wide-ranging
advertising campaigns, and to allocate investment assets to regions of highest
yield and demand. Many institutions offer services such as trust services and
international banking which the Bank does not directly offer (but which the Bank
may offer indirectly through other institutions). Many institutions, by virtue
of their greater total capital, can have substantially higher lending limits
than the Bank.
In commercial transactions, the Bank's legal lending limit to a single
borrower (approximately $15.8 million as of December 31, 2004) enables it to
compete effectively for the business of smaller companies. However, this legal
lending limit is considerably lower than that of various competing institutions
and thus may act as a constraint on the Bank's effectiveness in competing for
financing in excess of these limits.
In consumer transactions, the Bank believes it is able to compete on a
substantially equal basis with larger financial institutions because it offers
longer hours of operation, personalized service and competitive interest rates
on savings and time accounts with low minimum deposit requirements.
In order to compete with other financial institutions both within and
beyond its primary service area, the Bank uses, to the fullest extent possible,
the flexibility which independent status permits. This includes an emphasis on
specialized services for the small businessperson and professional contacts by
the Bank's officers, directors and employees, and the greatest possible efforts
to understand fully the financial situation of relatively small borrowers. The
size of such borrowers, in management's opinion, often inhibits close attention
to their needs by larger institutions. The Bank may seek to arrange for loans in
excess of its lending limit on a participation basis with other financial
institutions. As of the end of 2004, all participations totaled approximately
$11.3 million. Participations are used to more fully service customers whose
loan demands exceed the Bank's lending limit.
The Bank endeavors to be competitive with all competing financial
institutions in its primary service area with respect to interest rates paid on
time and savings deposits, its overdraft charges on deposit accounts, and
interest rates charged on loans.
Supervision and Regulation
The following discussion sets forth certain of the material elements of
the regulatory framework applicable to bank holding companies and their
subsidiaries and provides certain specific
7
information relevant to the Company. The regulatory framework is intended
primarily for the protection of depositors, other customers and the Federal
Deposit Insurance Funds and not for the protection of security holders. To the
extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. A change in applicable statutes,
regulations or regulatory policy may have a material effect on the business of
the Company.
The Company
The Company is subject to the jurisdiction of the Securities and
Exchange Commission ("SEC") and of state securities commissions for matters
relating to the offering and sale of its securities and is subject to the SEC's
rules and regulations relating to periodic reporting, reporting to shareholders,
proxy solicitation and insider trading.
The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate
governance, accounting and reporting measures for companies that have securities
registered under the Securities Exchange Act of 1934, such as the Company.
Specifically, the Sarbanes-Oxley Act and the various regulations promulgated
thereunder, established, among other things: (i) new requirements for audit
committees, including independence, expertise, and responsibilities; (ii)
additional responsibilities regarding financial statements for the Chief
Executive Officer and Chief Financial Officer of the reporting company; (iii)
new standards for auditors and the regulation of audits, including independence
provisions that restrict non-audit services that accountants may provide to
their audit clients; (iv) increased disclosure and reporting obligations for the
reporting company and their directors and executive officers, including
accelerated reporting of stock transactions and a prohibition on trading during
pension blackout periods; (v) a prohibition on personal loans to directors and
officers, except certain loans made by insured financial institutions on
non-preferential terms and in compliance with other bank regulatory
requirements; and (vi) a range of new and increased civil and criminal penalties
for fraud and other violations of the securities laws. The Company has addressed
the requirements imposed by regulations relating to the Sarbanes-Oxley Act,
including forming a Nominating and Corporate Governance Committee (and
establishing its charter), adopting a Code of Ethics applicable to the Company's
Chief Executive Officer, Chief Financial Officer and principal accounting
officer (in addition to the Code of Conduct already in place for all employees
of the Company), and meeting NASDAQ's and the SEC's procedural and disclosure
requirements.
In 1999, the Gramm-Leach-Bliley Act (better known as the Financial
Services Modernization Act of 1999) became law. The law permits bank holding
companies to become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. A bank holding company may become a financial holding
company if each of its subsidiary banks is well capitalized, is well managed and
has at least a satisfactory rating under the Community Reinvestment Act, by
filing a declaration that the bank holding company wishes to become a financial
holding company. Also, no regulatory approval is required for a financial
holding company to acquire a company, other than a bank or savings association,
engaged in activities that are financial in nature or incidental to activities
that are financial in nature, as determined by the Federal Reserve Board. The
Financial Services Modernization Act defines "financial in nature" to include:
securities underwriting, dealing and
8
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; merchant banking activities; and activities that the
Federal Reserve Board has determined to be closely related to banking. A
national bank also may engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development and real estate
investment, through a financial subsidiary of the bank, if the bank is well
capitalized, well managed and has at least a satisfactory Community Reinvestment
Act rating. Except for the increase in competitive pressures faced by all
banking organizations that is a likely consequence of the Act, the Company
believes that the legislation and implementing regulations are likely to have a
more immediate impact on large regional and national institutions than on
community-based institutions engaged principally in traditional banking
activities. Because the legislation permits bank holding companies to engage in
activities previously prohibited altogether or severely restricted because of
the risks they posed to the banking system, implementing regulations impose
strict and detailed prudential safeguards on affiliations among banking and
nonbanking companies in a holding company organization.
The Company is subject to the provisions of the Bank Holding Company
Act of 1956, as amended and to supervision and examination by the FRB. Under the
Bank Holding Company Act, the Company must secure the prior approval of the FRB
before it may own or control, directly or indirectly, more than 5% of the voting
shares or substantially all of the assets of any institution, including another
bank (unless it already owns a majority of the voting stock of the bank).
Satisfactory financial condition, particularly with regard to capital
adequacy, and satisfactory Community Reinvestment Act ratings are generally
prerequisites to obtaining federal regulatory approval to make acquisitions. The
Bank is currently rated "satisfactory" under the Community Reinvestment Act.
The Company is required to file an annual report with the Federal
Reserve Board and any additional information that the Federal Reserve Board may
require pursuant to the Bank Holding Company Act. The Federal Reserve Board may
also make examinations of the Company and any or all of its subsidiaries.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tying arrangements in connection with the extension of
credit or provision for any property or service. Thus, an affiliate of the
Company, such as the Bank, may not condition the extension of credit, the lease
or sale of property or furnishing of any services on (i) the customer's
obtaining or providing some additional credit, property or services from or to
the Bank or other subsidiaries of the Company, or (ii) the customer's refraining
from doing business with a competitor of the Bank, the Company or of its
subsidiaries. The Company or the Bank may impose conditions to the extent
necessary to reasonably assure the soundness of credit extended.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on (i) any extension of credit
to the bank holding company or any of its subsidiaries, (ii) investments in the
stock or other securities of the bank holding company, and (iii) taking the
stock or securities of the bank holding company as collateral for loans to any
borrower.
The Bank
As a nationally chartered commercial banking association, the Bank is
subject to regulation, supervision and regular examination by the Office of the
Comptroller of the Currency (OCC) and is
9
required to furnish quarterly reports to the OCC. The Bank is a member of the
Federal Reserve System. The Bank's deposits are insured by the FDIC up to
applicable legal limits. Some of the aspects of the lending and deposit business
of the Bank that are regulated by these agencies include personal lending,
mortgage lending and reserve requirements. The Bank is also subject to numerous
federal, state and local laws and regulations which set forth specific
restrictions and procedural requirements with respect to the extension of
credit, credit practices, the disclosure of credit terms and discrimination in
credit transactions. The approval of the OCC is required for the establishment
of additional branch offices.
Under the Change in Banking Control Act of 1978, subject to certain
exceptions, no person may acquire control of the Bank without giving at least
sixty days' prior written notice to the OCC. Under this Act and its regulations,
control of the Bank is generally presumed to be the power to vote ten percent
(10%) or more of the Common Stock. The OCC is empowered to disapprove any such
acquisition of control.
The amount of funds that the Bank may lend to a single borrower is
limited generally under the National Bank Act to 15% of the aggregate of its
capital, surplus and undivided profits and capital securities (all as defined by
statute and regulation).
The OCC has authority under the Financial Institutions Supervisory Act
to prohibit national banks from engaging in any activity, which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to the
Company.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the Company's business is particularly
susceptible to being affected by federal and state legislation and regulations,
which may affect the cost of doing business.
The USA Patriot Act imposes additional obligations on U.S. financial
institutions, including banks, to implement policies, procedures and controls,
which are reasonably designed to detect and report instances of money laundering
and the financing of terrorism. In addition, provisions of the USA Patriot Act
require the federal financial institution regulatory agencies to consider the
effectiveness of a financial institution's anti-money laundering activities when
reviewing bank applications.
National Monetary Policy
In addition to being affected by general economic conditions, the
earnings and growth of the Company are affected by the policies of regulatory
authorities, including the OCC, the FRB and the FDIC. An important function of
the FRB is to regulate the money supply and credit conditions. Among the
instruments used to implement these objectives are open market operations in
U.S. Government securities, setting the discount rate, and changes in reserve
requirements against bank deposits. These instruments are used in varying
combinations to influence overall growth and distribution of credit, bank loans,
investments and deposits, and their use may also affect interest rates charged
on loans or paid on deposits.
The monetary policies and regulations of the FRB have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. The effects of such policies upon the future
business, earnings, and growth of the Company cannot
10
be predicted.
Environmental Laws
The costs and effects of compliance with environmental laws, federal,
state and local, on the Company are minimal.
Available Information
The Company makes available free of charge under the Investor Relations
link on the Company's website, www.commercepc.com, its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after the Company
electronically files such material with, or furnishes to, the SEC. Additionally,
the SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at the web address, www.sec.gov.
Item 2. Properties
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As of December 31, 2004, the Company owns 12 properties and leases 21
other properties. The properties owned are not subject to any liens,
encumbrances, or collateral assignments. The principal office of the Company is
leased and located at 100 Senate Avenue, Camp Hill, Pennsylvania 17011. The Bank
presently has 24 branch offices located in the following Pennsylvania counties:
Cumberland, Berks, Dauphin, Lebanon, and York.
Item 3. Legal Proceedings
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The Company is subject to certain legal proceedings and claims arising
in the ordinary course of business. It is management's opinion that the ultimate
resolution of these claims will not have a material adverse effect on the
Company's financial position and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
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There were no matters submitted to a vote of security holders in the
fourth quarter of 2004.
Item 5. Market For Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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Prior to October 13, 2004, shares of Pennsylvania Commerce Bancorp,
Inc. common stock were traded on the NASDAQ Small Cap Market under the symbol
COBH. The stock currently trades on the NASDAQ National Market under the symbol
COBH. The table below sets forth the prices on the NASDAQ Small Cap Market
(adjusted for stock dividends) known to us for each full quarterly period within
the two most recent fiscal years and through October 12, 2004. The table also
includes the prices on the NASDAQ National Market known to us for the period
beginning October 13, 2004 through December 31, 2004. As of December 31, 2004,
there were approximately 700 holders of record of the Company's common stock.
11
Sales Price
Quarter Ended: High Low
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December 31, 2004 $ 31.50 $ 22.00
September 30, 2004 25.05 21.88
June 30, 2004 25.63 23.26
March 31, 2004 27.50 23.35
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December 31, 2003 $ 24.29 $ 19.75
September 30, 2003 19.69 17.56
June 30, 2003 18.92 16.75
March 31, 2003 19.05 16.19
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Dividends and Dividend History
The Company distributed to stockholders 5% stock dividends in December
1992, and annually from February 1994 through February 2004. The Company also
distributed to stockholders a two-for-one stock split (payable in the form of a
100% stock dividend) on August 7, 1995, and on February 25, 2005. Neither the
Company nor the Bank has declared or paid cash dividends on its common stock
since the Bank began operations in June 1985. The Board of Directors intends to
follow a policy of retaining earnings for the purpose of increasing the
Company's and the Bank's capital for the foreseeable future. Although the Board
of Directors anticipates establishing a cash dividend policy in the future, no
assurance can be given that cash dividends will be paid.
The holders of Common Stock of the Company are entitled to receive
dividends as may be declared by the Board of Directors with respect to the
Common Stock out of funds of the Company. While the Company is not subject to
certain restrictions on dividends and stock redemptions applicable to a bank,
the ability of the Company to pay dividends to the holders of its Common Stock
will depend to a large extent upon the amount of dividends paid by the Bank to
the Company. Regulatory authorities restrict the amount of cash dividends the
Bank can declare without prior regulatory approval. Presently, the Bank cannot
declare a dividend in excess of its accumulated retained earnings.
The ability of the Company to pay dividends on its Common Stock in the
future will depend on the earnings and the financial condition of the Bank and
the Company. The Company's ability to pay dividends will be subject to the prior
payment by the Company of principal and interest on any debt obligations it may
incur in the future as well as other factors that may exist at the time.
12
Item 6. Selected Financial Data
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Pennsylvania Commerce Bancorp, Inc.
Selected Consolidated Financial Data
At or For the
Year Ended December 31,
(dollars in thousands, except per share data) 2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
SELECTED BALANCE SHEET DATA:
Total assets $ 1,277,367 $1,051,989 $ 786,598 $ 609,890 $ 480,086
Loans held for sale 14,287 9,164 10,514 7,661 5,329
Loans receivable (net) 638,496 469,937 363,735 338,130 286,520
Securities available for sale 314,065 275,400 205,436 104,722 90,633
Securities held to maturity 209,917 199,863 97,625 103,349 33,812
Federal funds sold 12,000 - 44,500 4,300 22,800
Deposits 1,160,547 906,527 726,955 561,738 446,583
Short-term borrowings and long-term debt 13,600 79,000 - - -
Trust capital securities - 13,000 13,000 13,000 5,000
Stockholders' equity 85,039 49,724 42,812 32,593 26,668
SELECTED INCOME STATEMENT DATA:
Net interest income $ 46,585 $ 33,890 $ 27,701 $ 22,054 $ 17,477
Provision for loan losses 2,646 1,695 1,435 1,469 1,050
Noninterest income 11,296 9,990 7,707 6,607 5,362
Noninterest operating expenses 42,466 32,510 25,428 20,512 16,189
Income before income taxes 12,769 9,675 8,545 6,680 5,600
Net income 8,591 6,557 5,674 4,448 3,714
COMMON SHARE DATA:
Net income per share: Basic $ 1.75 $ 1.44 $ 1.29 $ 1.07 $ 0.90
Diluted 1.63 1.34 1.18 0.97 0.85
Book Value per share 14.31 10.62 9.40 7.61 6.33
SELECTED PERFORMANCE RATIOS:
Return on average assets 0.73 % 0.74 % 0.81 % 0.82 % 0.88 %
Return on average stockholders' equity 14.78 14.27 14.86 14.85 16.59
Net interest margin 4.28 4.20 4.29 4.40 4.49
SELECTED LIQUIDITY AND CAPITAL RATIOS:
Average loans to average deposits 57.20 % 52.23 % 56.91 % 63.25 % 65.12 %
Average stockholders' equity to average total assets 4.96 5.22 5.49 5.54 5.29
Risk based capital: Tier 1 11.57 9.57 11.16 10.22 9.90
Total 12.49 10.49 12.22 11.78 11.04
Leverage Capital 7.79 6.19 7.00 7.33 6.92
ASSET QUALITY RATIOS:
Net charge-offs to average loans outstanding 0.14 % 0.20 % 0.23 % 0.21 % 0.06 %
Non-performing loans to total year-end loans 0.13 0.25 0.45 0.26 0.29
Non-performing assets to total year-end assets 0.11 0.13 0.23 0.15 0.18
Allowance for loan losses to total year-end loans 1.21 1.26 1.40 1.33 1.29
Allowance for loan losses to non-performing loans 916 513 311 519 448
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
- ----------------------------------------------------------------------------
The information required by this item is incorporated by reference to
pages 24 through 43 in the Company's 2004 Annual Report, which is attached to
this Form 10-K as Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- -----------------------------------------------------------------------
The information required by this item is incorporated by reference to
page 43 in the Company's 2004 Annual Report, which is attached to this Form 10-K
as Exhibit 13.
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------
The information required by this item is incorporated by reference to
pages 44 through 65 in the Company's 2004 Annual Report, which is attached to
this Form 10-K as Exhibit 13.
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------------------------------------------------------------------------
None.
Item 9A. Controls and Procedures
- ----------------------------------
Under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
the Company has evaluated the effectiveness of its disclosure controls and
procedures as of December 31, 2004. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiaries
is made known to them by others within those entities, particularly during the
period in which this report was prepared. There have not been any changes in the
Company's internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information
- ----------------------------
None.
Part III.
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2005 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2005. In addition to a Code of Business Conduct and Ethics
applicable to all employees, the Company has adopted a Code of Ethics for Senior
Financial Officers that is specifically applicable to its Chief Executive
Officer, Chief Financial Officer and Principal Accounting Officer. Both of these
codes are posted under the Investor Relations link on the Company's website,
www.commercepc.com.
14
Item 11. Executive Compensation
- --------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2005 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2005.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
- --------------------------------------------------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2005 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2005.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2005 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2005.
Item 14. Principal Accountant Fees and Services
- ------------------------------------------------------
Information responsive to this item is incorporated by reference to the
Company's definitive proxy statement for the 2005 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
before April 29, 2005.
Part IV.
Item 15. Exhibits, Financial Statement Schedules.
- --------------------------------------------------------
(a)(1) The following financial statements are incorporated by
reference in Part II, Item 8 hereof:
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Income for the years ended December
31, 2004, 2003 and 2002
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
15
(a)(2) Financial Statement Schedules (This item is omitted since
information required is either not applicable or is included in
the footnotes to the Annual Financial Statements.)
(a)(3) List of Exhibits:
3.1. Articles of Incorporation, of the Company as amended
(incorporated by reference to Appendix D to the Company's
Registration Statement on Form S-4, filed with the SEC on May
14, 1999).
3.2. By - Laws, of the Company as amended (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K, filed with the SEC on March 30, 2004).
4. Registration Rights Agreement dated as of September 29, 2004
between the Company and Commerce Bancorp, Inc. (incorporated
by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K, filed with the SEC on October 1, 2004)
10.1. The Company's 1990 Directors Stock Option Plan*
10.2. The Company's 1996 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K, filed with the SEC on December 23, 2004)*
10.3. Warrant Agreement and Warrant No. 1 of Commerce
Bank/Harrisburg dated October 7, 1988 (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K, filed with the SEC on March 30, 2000)
10.4. Amendment No. 1 to the Stock and Warrant Purchase Agreement
(incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K, filed with the SEC on March 30,
2000)
10.5. The Company's 2001 Directors Stock Option Plan (incorporated
by reference to Exhibit 10.2 to the Company's Current Report
on Form 8-K, filed with the SEC on December 23, 2004)*
10.6. Amendment No. 1 to Network Agreement, including original
Network Agreement, by and among Commerce Bancorp, Inc.,
Pennsylvania Commerce Bancorp, Inc. and Commerce
Bank/Harrisburg, N.A. (incorporated by reference from Exhibit
10 to the Company's Quarterly Report on Form 10-Q, filed with
the SEC on November 14, 2003)
10.7. Amendment No. 2 to Network Agreement, including original
Network Agreement, by and among Commerce Bancorp, Inc.,
Pennsylvania Commerce Bancorp, Inc. and Commerce
Bank/Harrisburg, N.A. (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K, filed with
the SEC on October 1, 2004)
10.8. Stock Purchase Agreement dated as of September 29, 2004
between Pennsylvania Commerce Bancorp, Inc. and Commerce
Bancorp, Inc. (incorporated by reference
16
to Exhibit 10.2 to the Company's Current Report on Form 8-K,
filed with the SEC on October 1, 2004)
11. Calculation of EPS
(The information required by this item appears in Note 13 of
the Consolidated Financial Statements of the Company's 2004
Annual Report to Shareholders and is incorporated by reference
herein.)
13. Pennsylvania Commerce Bancorp, Inc. 2004 Annual Report to
Shareholders
21. Subsidiaries of the Company
23. Consent of Beard Miller Company LLP.
31.1 Certification of CEO, required by SEC Rule 13a-14(a)/15d-14(a)
31.2 Certification of CFO, required by SEC Rule 13a-14(a)/15d-14(a)
32 Section 1350 Certification by CEO and CFO
99. Agreement to Furnish Debt Instruments
(b) Exhibits - The exhibits required to be filed as part of this report are
submitted as a separate section of this report.
(c) Financial Statement Schedules - None required.
- -------------
* Denotes a compensatory plan or arrangement
- --------------------------------------------
17
Signatures
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Pennsylvania Commerce Bancorp, Inc.
(Registrant)
Date: March 31, 2005 By /s/ Gary L. Nalbandian
-------------------------------
Gary L. Nalbandian
Chairman and President
Date: March 31, 2005 By /s/ Mark A. Zody
-------------------------------
Mark A. Zody
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gary L. Nalbandian Chairman of the Board, President and March 31, 2005
- --------------------------------------------- Director (Principal Executive Officer)
Gary L. Nalbandian
/s/ James R. Adair Director March 31, 2005
- ---------------------------------------------
James R. Adair
/s/ John J. Cardello March 31, 2005
- --------------------------------------------- Director
John J. Cardello
/s/ Douglas S. Gelder March 31, 2005
- --------------------------------------------- Director
Douglas S. Gelder
/s/ Alan R. Hassman Director March 31, 2005
- ---------------------------------------------
Alan R. Hassman
/s/ Howell C. Mette March 31, 2005
- --------------------------------------------- Director
Howell C. Mette
/s/ Michael A. Serluco Director March 31, 2005
- ---------------------------------------------
Michael A. Serluco
/s/ Samir J. Srouji, M.D. Director March 31, 2005
- ---------------------------------------------
Samir J. Srouji, M.D.
18